BUCHAREST BLOG: Little chance new govt can restore credibility

By bne IntelliNewsMay 30, 2012

Bogdan Preda in Bucharest -

In February 2011, an enterprising Romanian journalist did a devious, yet extremely enlightening, thing: claiming to be a rich Arab businessman, he sent text messages to nearly all 460 members of parliament saying that he wanted to develop a private, mutually advantageous business with their help. Almost a quarter responded positively, despite legislation that prevents them from being involved in such economic activities.

One lawmaker returned the call to express interest just a minute after receiving the text, while another MP, who at the time was also a government minister, called back the imaginary rich businessman seven times in just two hours, according to Romania Libera daily journalist Daniel Befu, who published all the responses received from lawmakers on the internet.

The Romanian media is filled with such examples of politicians and government employees who buy their way into public jobs only to try to recoup their "investment", and then some, at a later date.

Of course, politics, and especially when one is on the winning side, inevitably brings benefits, wherever you are in the world. However, in properly functioning democracies winners must also do something for the well being of the voters. Yet in Romania, each electoral campaign is notable for empty promises and even the handing out of basic food stuff in rural areas. After the election takes place, promises are forgotten and public money all too often gets misused.

Credibility gap

Political parties' motivations are no longer taken seriously by the electorate. In April, the Democratic Liberals, mimicking a centre-right party, were replaced following a no-confidence vote by a mongrel alliance made up of two other opposition parties: the centre-left Social Democrats and the centre-right National Liberals. They, too, are mimicking the centre-left or centre-right, because in Romania almost everything pertains to momentary economic interests.

Most voters know that the National Liberals and the Social Democrats allied just so they are better placed to win the elections in November and that, as was the case too many times before, they'll very soon find good reasons to fight and split if they see the chance for a comfortable majority in parliament. Such a lack of political conscience was also easily noticeable during the no-confidence vote, when the Democratic Liberals were betrayed by even some of their own members who realised that if the polls were right, they would not win a seat in November, so they plumped for the opposition's support.

Romania's new prime minister, Victor Ponta, has already started behaving as though there will be no major changes in the country's balance of power for the next four years. In an attempt to secure command of Romania's regions in preparation for the November elections, the second day after he became PM Ponta called for the resignation of all the prefects and sub-prefects in all 42 counties, saying they were serving the political and economic interests of the Democratic Liberals. The call was made despite the fact these prefects are at least formally protected by law, as well most of them having been appointed in 2006, when his alliance's co-founders, the National Liberals, were in power.

Such an aggressive action by Ponta immediately prompted eight of Romania's most prominent NGOs on May 16 to issue an "Alert from the Romanian Civil Society," which accused Ponta of "Fidesz-ization" - a reference to neighbouring Hungary's anti-democratic slide under PM Victor Orban and his Fidesz party. "The danger is visible that the new Prime Minister Victor Ponta may step in the footprints of his Hungarian counterpart, Viktor Orban, by purging the administration and the public media of independent professionals and critical voices, and engineering a super-majority in the next Parliament," the statement said.

Broken promises

Romanians and foreign investors alike are sick of successive governments either not keeping promises or starting things that swallow huge amounts of public money with little or no purpose or finality.

Just days after the new government took shape in early May, Economy Minister Daniel Chitoiu, a member of the National Liberal Party, promised that he would revise all the contracts of about a dozen companies that obtained cheaper hydroelectric and nuclear power from state utilities Hidroelectrica and Nuclearelectrica by bringing their privileged deals to market level prices. His announcement was also in line with demands from the IMF and the European Commission, who argue such preferential contracts sealed more than five years ago by former governments were draining money from the very few efficient public companies, while also going against competition rules. Chitoiu said that he would make public the new contracts with those previously privileged companies in a news conference on May 18. Instead, he limited the details only to say that he agreed with those companies that they should no longer benefit from fixed, below-the-market prices, but instead apply a "formula based on the average market price," which he would not disclose.

Through practices like these, the new government is already denting its credibility, as it also did when Ponta had to let go his newly-appointed education minister Ioan Mang, amid a huge scandal involving strong accusations of plagiarism for the computer software papers he allegedly wrote as a university professor. Although Mang denied the accusations, the press published facsimile copies of his works alongside the originals and foreign expert opinions.

Trying to score more political points with the electorate, Ponta said he would change Romania's taxation system as of next year from the current flat income tax of 16%, to a progressive one of 8%, 12% and 16%. Ponta also promised to lower the cost of employers for hiring new workers by 5 percentage points, while also cut VAT from 24% to 9% for agricultural products.

While such new tax arrangements may be in line with a social-democratic vision, it does nothing more than add a lack credibility and predictability to the country's fiscal system, especially on the foreign investments side. That's because while Ponta stated such cuts would work following public budget simulations by his team, he didn't say where from he would secure the difference of money so that he can produce enough income to keep the budget deficit in check.

In fact, such statements have already raised concerns that Ponta's government may actually resort to hiking income taxes rates than the current 16% income tax once his coalition becomes sure about staying in power after the November elections.

Lesser of two evils

There is also little hope the Democratic Liberal Party that lost power at the end of April has learned enough from its previous stint in power to make a better fist of it if they were to win a majority in November. In fact, despite obvious evidence of inefficiency and mistakes, they did little or nothing to change things.

For example, €10bn of public money has been spent, or better say wasted, over the past five years by the state-owned National Highway and Road Company on just 150 kilometres of completed highway. Then there was the preferential power sales awarded by state-owned Hidroelectrica to certain power trading companies, which resulted in €1.5bn of profits over the last 10 years disappearing. And the state railway company, which has been constantly managed by political appointees, has posted losses totaling €1.3bn over the past four years.

Romania's failure to attract EU funding between 2007 and 2013 could impact on the bloc's decision to award it an equal amount of money for the next 2014-2020 period, the Commission has warned. Yet to get the same amount, over the next year or so Romania would have to put together projects worth €30m a week. Impossible if past experience is anything to go by.

Given the lack of administrative efficiency, Romania is pinning its hopes on the level of aid for the next 2014-2020 funding cycle not being tied to the amount received during the current six-year post-accession period. But not even that would be enough, because since it's almost impossible to divert EU aid funds into other businesses due to strict monitoring, officials are not attracted by the hard work needed to put together the projects. That has so far resulted in the country having absorbed no more than about 6% of the EUR19.6bn it was entitled to, had it put the correct procedures in place.

With the example of Greece next door bringing the EU close to collapse, Romanian politicians might soon have to grapple with the reality that there could come a day when there might be nothing else to grab simply because there will be nothing left. One can only hope that Romanians, like Greeks today, won't have to find that out the hard way.

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